Whether you’re doing some personal shopping for airline tickets, or you’re a mortgage broker choosing which wholesale lender to work with, low prices will certainly catch your attention.
It’s so easy for a loan officer to treat a mortgage lender’s rate sheet like gold, focusing on price (and only price) when choosing which wholesale lender to send loans to. But it can easily be a trap. Oftentimes, what looks better at first glance ends up looking less attractive once you peel back the layers of additional fees that come up throughout the closing process.
The fact that loan officers have the ability to choose from several different wholesale lenders is a positive thing for the industry and for consumers. Having options is always a good thing. But it also leads to situations where loan officers are so bombarded by all the different lenders that they simply choose to send loans to the place with the best pricing on their rate sheet.
That can turn out to be a big mistake.
It’s the same mistake that consumers make when booking flights. The process is the same for everyone: you compare ticket prices across a variety of different airlines and focus on finding the lowest number possible.
But what doesn’t show up in that low ticket price is all the additional fees that they’ll nickel and dime you with. You have to pay extra money to bring a carry-on bag onto the flight. If you get hungry or thirsty over the course of the flight, snacks and drinks all cost extra money. In-flight entertainment requires a credit card. By the time the flight is over, the airline found several ways to negate that overall price advantage they held over the other airline.
That’s the risk you run when you choose the “discount airline” – the place that is widely recognized for offering the cheapest prices.
On top of the financial discrepancy, you’re likely dealing with a worse customer experience, as well. If, after paying all the extra fees, you still manage to save $20 on a flight with the discount airline, those savings probably aren’t worth it if you miss your connecting flight because that airline ran an hour behind schedule.
The sentiment is the same in the mortgage business when loan officers choose to send loans to “discount lenders”.
One wholesale lender might be the clear frontrunner because of their rate sheet, but rate sheets don’t describe the full loan experience. The discount lender with cheaper rates likely has more expensive mortgage insurance and extra appraisal fees, closing fees and escrow waiver fees that negate a huge chunk of their price advantage.
All of that nickel-and-diming can even add up enough to make the discount lender the more expensive option. Larger wholesale lenders can negotiate based on volume to bring additional savings to their broker partners, and those savings ultimately get passed on to borrowers.
Don’t fall for the “cheapest price” routine that discount lenders push. Look at the overall package. Not only is the cost gap not as large as it might initially appear, but you’re likely signing up for the worst experience for you and your customer. And then, you can forget about getting a good review, let alone a referral or repeat business.